How Can I Lower My Mortgage Rate?

Refinancing your mortgage is one way to lower monthly house payments.

Mortgages have different interest rates and terms that determine how much a homeowner must pay each month. Economic conditions and the rates at which banks lend each other money help determine what interest rate a lender offers to a borrower. Other factors that influence the total monthly payments include the applicant's credit history, the term of the loan and the location of the property. Fixed-rate loans generally have higher interest rates than the initial interest rates offered on variable-rate mortgages--but the lower rates of those adjustable-rate loans are temporary. After a predetermined period, the rates can rise or fall.

1

Review all paperwork pertinent to the existing loan. Compile information about the current interest rate for your fixed-rate loan or the specifics about when your adjustable-rate loan resets. Write down the information on a notepad in order to easily compare your current loan to potential replacements.

2

Contact the lender currently administrating the loan, or contact the mortgage broker who originally helped you get the loan. Inquire about the possibility of obtaining an interest rate reduction--without having to refinance. Provide details of any credit rating improvements that might help influence the decision.

3

Tell the lender representative about any changes to the loan-to-value ratio for the mortgage that might make elimination of private mortgage insurance possible. When a homeowner pays down the loan past the 80 percent threshold, he can request that the mortgage insurance fee be canceled.

4

Ask the lender about refinance options if reducing the interest rate on your existing mortgage is not possible. Inquire about the current rates and packages offered. Write down the information on the same notepad used for detailing current loan specifications. Ask about changing an adjustable-rate loan to a fixed-rate loan, or about obtaining more favorable terms on a new adjustable-rate mortgage.

5

Shop around for other loans and rates. Calculate the time it will take to recover money spent on refinancing. Include appraisal fees and loan document fees, among others. Compile at least three different sets of mortgage packages, and compare the benefits and drawbacks of each. Choose the offer with the best interest rate and terms after careful analysis of each.

6

Apply for the new mortgage. Follow all instructions given by the lending agent, and supply earnings and debt information as required. Keep track of the progress of the loan; some applications go through quickly, while others take weeks to complete.

Tip

Refinancing a 30-year fixed-rate loan to a 15-year term with a lower interest rate can save money in interest paid over the course of the loan.